The U.S. is now selling more petroleum products than it is buying for
the first time in more than six decades. Yet Americans are paying
around $4 or more for a gallon of gas, even as demand slumps to historic
lows. What gives?

***

Americans have been told for years that if only we drilled more oil, we would see a drop in gasoline prices.

So, even as we drill for more oil in the U.S., the price benchmark
has dodged the markdown bullet by taking cues from the more expensive
oil. As always, we must compete with the rest of the world for petroleum
– including our own.

This is an unprecedented shift. Since the dawn of the modern-day oil
markets in downtown Manhattan in the 1980s, U.S. gasoline prices have
followed the domestic oil price ….

In the past year, U.S. oil prices have repeatedly traded in the
double-digits below the Brent price. That is money Wall Street cannot
afford to walk away from.

To put it more literally, if a Wall Street trader or a major oil
company can get a higher price for oil from an overseas buyer, rather
than an American one, the overseas buyer wins.

Just because an oil
company drills inside U.S. borders doesn’t mean it has to sell to a U.S.
buyer. There is patriotism and then there is profit motive.

This is why
Americans should carefully consider the sacrifice of wildlife
preservation areas before designating them for oil drilling. The harsh
reality is that we may never see a drop of oil that comes from some of
our most precious lands.

“The sale of an oil pipeline running from Oklahoma to Texas upended
U.S. energy markets Wednesday, sending the price of crude surging above
$100 a barrel...

Enbridge Inc.—which bought a 50% stake in the Seaway
Pipeline—announced it would reverse the direction of the flow, allowing
more crude to move south from oil storage in Cushing, Okla., into the
world’s largest refinery complex along the Gulf Coast.

Over the past two
years, the U.S. has started producing so much oil that existing
pipelines have been unable to move it to refineries. That has led to a
glut of oil in the center of the country, keeping the price of American
crude far below that of petroleum traded overseas...

With a new supply of
oil headed to Gulf Coast refineries, exports of gasoline are expected to
rise.

For decades, oil has been imported from overseas to the Gulf
Coast, then either refined there or moved elsewhere in the U.S. for
processing.

“The pipeline system was set up to move crude from south to
north…U.S. oil production, which had been declining since the 1970s, is
climbing again.

After bottoming out at five million barrels a day in
2008, domestic production has jumped by 10% in the past couple of years.
It is expected to grow even more amid a drilling boom, as companies use
hydraulic fracturing to free oil from shale rocks...

More crude flowing to the Gulf Coast will feed a growing energy-export business to Latin America’s rapidly growing economies.
U.S. exports of petroleum products have reached 2.6 million barrels a
day, double the level of three years ago.

Roughly 15% of the gasoline
and diesel refined in the U.S. is now exported, according to U.S. Energy
Department data.

“The middle of the U.S. should start considering
applying for membership in OPEC,” said Phil Verleger, an oil economist
who runs PK Verleger LLC.

So
much gasoline and diesel is exported from the Gulf Coast that U.S.
customers compete with customers in Mexico and the rest of Latin
America—and have to pay as much as these foreign users ….

Because of the glut in Cushing, the price paid for crude in the Midwest U.S. has been substantially less than European benchmark prices, such as Brent crude.

This is expected to largely disappear by the middle of next year, as the Seaway pipeline change gets underway.”

CNN Money reported in March that the Keystone Pipeline might also raise fuel prices within the U.S:

Gas prices might go up, not down: Right now, a lot of oil being
produced in Canada and North Dakota has trouble reaching the refineries
and terminals on the Gulf.

Since that supply can’t be sold abroad, it
reduces the competition for it to Midwest refineries that can pay lower
prices to get it.

Giving the Canadian oil access to the Gulf means the glut in the Midwest goes away, making it more expensive for the region.

Tyson Slocum – Director of Public Citizens’ Energy Program – explained in November:

How does bringing in more oil supply result in higher gas
prices, you ask? Let me walk you through the facts.

A combination of
record domestic oil production and anemic domestic demand has resulted
in large stockpiles of crude oil in the U.S.

In particular, supplies of
crude in the critical area of Cushing, OK increased more than 150%
from 2004 to early 2011 (compared to a 40% rise for the country as a
whole).

Segments of the oil industry want to import additional supplies
of crude from Canada, bypass the surplus crude stockpiles in Oklahoma in
an effort to refine this Canadian imported oil into gasoline in the
Gulf Coast with the goal of increasing gasoline exports to Latin America and other foreign markets.

***

Cushing typically is a busy place – I noted in my recent Senate testimony how
Wall Street speculators were snapping up oil storage capacity at
Cushing. All of that surplus capacity is pushing WTI prices down –
and for many in the oil business, downward pressure on prices is a
terrible thing.

As MarketWatch
reports, “[B]y running south across six U.S. states from Alberta to the
Gulf of Mexico, [the Keystone pipeline] would skirt the pipeline hub at
landlocked Cushing, Okla., a bottleneck that has forced
Canadian producers to sell their oil at a steep discount to other crude
grades facing fewer obstacles to the market.

***

There are several global crude oil benchmarks, and the price
differential between Brent and WTI now is around $10/barrel, which is a
fairly significant spread, historically speaking.

Moving more
Canadian crude to bypass the WTI-benchmarked Cushing stocks, the
industry hopes, will align WTI’s current price discount to be higher, and more in line with Brent.

***

The Keystone pipeline isn’t just about expanding the unsustainable mining of ... Canadian crude, but also to raise gasoline prices for American consumers whose gasoline is currently priced under WTI crude benchmark prices.

In an interview in January, Slocum noted that oil is America’s number 1 import at time same that fuel is America’s number 1 export.

Specifically, more oil is being produced now under Obama than under Bush. But gas consumption is flat.

So producers are exporting refined products. By exporting, producers
keep refined products off the U.S. market, creating artificial scarcity
and keeping U.S. fuel prices high.

Slocum said that the main goal of the Keystone Pipeline is to import
Canadian crude so the big American oil companies can export more refined
fuel, driving up prices for U.S. consumers.

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